Is fraud terrorism’s new ally?

Expert advice on detecting terrorism financing and money laundering

Today’s terrorists use many of the same sophisticated business practices as legitimate multinational corporations to achieve their goals. Terrorists are not just stealing funds; they are stealing credit card information, social security numbers – entire identities – and selling them for profit. For example, Al-Qaeda has been known to encourage and instruct terrorist cells in ways they can fund terrorist actions through various financial crime activities.

The threat of terrorism changes the geopolitical landscape. Everyone is concerned about it and the reputational risk it involves. No technology has done an exceptional job at detecting terrorism financing, and many tools available today may be considered as racial or ethnic profiling tools that violate civil liberties. “However,” says David Stewart, Americas Sales Director for the Financial Crimes Business Unit at SAS, “technology can be used legally to monitor three important areas: high-risk institutions and nongovernmental organizations (NGO) such as charities or nonprofits; sanction lists; and high-risk geographies.”

With high-risk institutions and NGOs, transactions can be closely monitored and scrutinized to detect patterns and behaviors. Using sanction lists can align monitoring with the Office of Foreign Assets Control. Banks are required to screen wire transactions for sanctioned persons, lists and entities. For example, no US bank is allowed to do business with the Central Bank of Iran. There are also high-risk geographies where about 50 to 70 countries are strictly monitored and large wires are closely scrutinized. Financial institutions must examine these three areas closely.

Combating money laundering

Regarding anti-money laundering, Stewart says, “Compliance officers are faced with an environment of rapid change and need to mitigate their regulatory and reputational risks – and do it at a reasonable cost of ownership.” The regulatory environment is ever-changing and regulatory agencies are placing greater scrutiny on compliance officers. “Let’s be honest,” Stewart says, “we live in a different world today. The global nature of electronic commerce is no longer a problem just for money-central banks; it’s a problem for every financial institution.” Stewart notes risks also lie with instruments like stored-value cards, mobile payment technologies, Internet gambling and other money-service businesses.

To combat money laundering, Stewart advises that organizations must be able to:

•   Scale large volumes of data and monitor all customers and relationships using advanced techniques such as link analysis, clustering analysis or near-neighbor techniques.

•   Support integrated investigation environments to speed up the decision process.

•   Score risks and analyze customer behavior across product lines.

•   Apply business intelligence via ad hoc analysis, so the system can look back at data and learn from it.

“By adopting the use of advanced analytics and taking a proactive approach to enhanced due diligence, financial institutions have made it more difficult for regimes to fund terrorism,” Stewart adds. “With added scrutiny on non-governmental organizations, terrorists will have to start looking elsewhere for financing.”